Ted Fang, the man who would take over Hearst's Examiner and turn it into a smaller local paper, testified that he and his representatives had several private meetings with Mayor Willie Brown and met five times with U.S. Department of Justice lawyers about the deal.

Fang shed new light on the backstage play for the paper, testifying Monday as the last witness in the trial on former mayoral candidate Clint Reilly's suit to block Hearst from buying the San Francisco Chronicle and selling The

Examiner.

U.S. District Judge Vaughn R. Walker said each newspaper sale raised different issues. He noted hypothetically that he could allow Hearst's Chronicle purchase, while barring its Examiner sale. He also noted that the law gives him "broad power to fashion critical relief."

Walker set May 31 for final arguments in the case and ordered the lawyers to file briefs in advance. He did not say when he would rule, but vowed to conclude the case "as rapidly as possible."

Each side promptly claimed victory.

In a press statement, Hearst claimed it had proven The Examiner is a failing company and that as a result it may lawfully sell the paper to the Fangs or close it and buy the Chronicle.

Fang told reporters, "I think I have proven that I will bring daily newspaper competition back to San Francisco."

'Ultimate sham'

And Joseph M. Alioto, Reilly's lawyer, contended that the trial had exposed Fang's deal to buy the Examiner as "the ultimate sham."

Reilly has asked Walker to bar Hearst from buying the Chronicle. He claims Hearst's plan to sell The Examiner to the Fangs was designed to doom the paper and give Hearst an illegal newspaper monopoly in San Francisco.

The Examiner's sale to the Fangs is contingent on Hearst's purchase of the Chronicle, Hearst has said.

The day ended after Alioto's two-hour cross-examination of Fang, publisher of the free, thrice-weekly San Francisco Independent.

Alioto began by getting Fang to admit that he lied when he told the U.S. Department of Justice in a sworn deposition in November

that he graduated from UC-Berkeley in 1983. Fang repeated the lie in a press release Monday. The Justice Department was conducting an antitrust review of Hearst's proposed deals.

"I went through the ceremonies but I am four units short of a full degree," Fang said, quipping, "You got me, Mr. Alioto."

Fang, 37, remained cool throughout a full day on the stand. His lawyer, David Balabanian, sought to show that Fang had a good shot at making The Examiner a success. Alioto tried to prove Fang's plan for The Examiner was a scam engineered through the Fang family's political connections.

Fang, whose Independent backed Brown against Reilly in the 1999 mayoral race, testified that he repeatedly told Brown of his desire to acquire The Examiner starting in August.

Fang and the mayor talked about the pending Justice Department review of the case, and about a plan to put together a "save The Examiner committee" on which Fang would serve, Fang testified.

Fang said he could not recall how often he met with Brown, but Alioto read from an earlier deposition in which Fang said they may have met six times.

Alioto pointed out that Fang had said in a trial deposition that he didn't know when the last meeting was - but that Fang on Monday claimed the meeting on setting up the committee was after Brown's Jan. 8 inauguration.

In his inaugural speech, Brown suggested that "we can put together . . . a group of people to buy The Examiner . . . a civic treasure."

Brown on Aug 20, 1999, wrote U.S. Attorney General Janet Reno, expressing concern that Hearst's initial plan to buy the Chronicle would close The Examiner and threaten Fang's Independent.

That would damage San Francisco's economy and diversity of voices, said Brown, who offered his administration's full cooperation with the Justice Department inquiry.

The letter did not say how the deals imperiled the Independent.

On direct examination, Balabanian sought to show that the Justice Department's contact with Fang was neutral.

Meetings with Justice

Fang testified he met five times with Justice Department antitrust lawyer Thomas Horton, who initiated each contact.

The first contact was in October 1999, when Horton spent a day interviewing Fang at his office and touring the Independent's plant, Fang said.

In January, Fang again met with Horton, who "wanted to make sure that we were still interested" in buying The Examiner, Fang said.

In late March, after Hearst announced it would sell The Examiner to Fang, Horton summoned Fang to Washington, where he met with 12-15 departmental lawyers and newspaper experts.

The city attorney's office also reviewed the deal. But Fang said he had only one contact with that office, when Patrick Mahoney, its chief of litigation, phoned him with questions similar to Horton's.

Alioto said at a news conference later that Justice Department officials had not contacted any other bidder for The Examiner, including Reilly.

Fang also testified that he had no contact with District Attorney Terence Hallinan's office, nor with state Attorney General Bill Lockyer's office, both of which had announced they were reviewing the newspaper deals.

Initially, Fang said, Hearst solicited him to buy The Examiner after announcing in August that it agreed to buy the Chronicle from its local owners.

Fang added that he wanted part of The Examiner's profit-splitting agreement with the Chronicle, set to run through 2005. But Hearst refused, and he decided that as offered The Examiner "did not constitute a viable business entity."

New offer

But finding no buyers, Hearst made a revised sale offer in Janu

ary. Fang said the Justice Department had told him Hearst might make the offer.

Hearst's new offer included a printing plant and The Examiner's building at 110 Fifth St. But Hearst still refused to give a share of the joint operating agreement, he said, and invited Fang to suggest a publishing subsidy instead.

Fang hired Joseph Niehaus, a colleague of Hellman's, to help in what Fang called "intense" negotiations with Hearst, because of the Fangs' "somewhat hostile relationships with Hearst in the past."

The Fangs twice sued Hearst for alleged unfair practices in soliciting advertising and publishing contracts. The first case was settled out of court. Hearst lost the second at trial, but won on appeal.

Eventually, Hearst agreed to give Fang a maximum publishing subsidy of $66 million over three years, and a deal was cut March 16.

Questioned by Alioto, Fang said Hearst had insisted on contract language limiting the combined total salary for Fang and his family to $500,000 a year.

Fang said the $500,000 was at least four times his salary as publisher of the Independent.

Fang testified that Hearst proposed the figure based on the salary of The Examiner's publisher, which he said was more than $300,000.

Fang said Hearst also suggested a clause that sets a maximum annual publishing subsidy of $25 million, but lets his family keep half of every dollar it doesn't spend after $15 million. He acknowledged that he could thus keep up to $5 million a year "without strings."

Alioto introduced a March 12 e-mail from one of Fang's consultants showing an annual operating budget for The Examiner of just under $16 million, suggesting Fang planned to pocket the leftover subsidy.

Fang said he would put the full subsidy into The Examiner because he wanted to make the paper succeed and could keep all revenue it generated.

"I would put any monies made by The Examiner back into The Examiner to grow that business," Fang said.

Alioto tried to show that Fang really believed The Examiner would fail.

Time for transition

Fang, Alioto said, had told the Justice Department in November

that Hearst would keep the Chronicle and The Examiner's current advertising accounts, which would be "setting up . . . the new owners of The Examiner for failure."

Fang also told Justice that The Examiner's new owners would need at least a one- to two-year transition period to get the paper going independently.

But Fang testified Monday that since his deposition by the Justice Department Hearst had agreed that he could solicit its advertisers, and that he had added press capacity and could make the transition in four months.

Fang said he would make The Examiner succeed by using a smaller editorial staff - about 30 to 40 people compared with the current Examiner's 200 or so; computerized production methods; advertising aimed at key ZIP codes, and advertising rates less than one-tenth of the Chronicle's.

Fang said his Examiner would publish six mornings each week and focus on city news.

He said he would model his Examiner on other local papers, such as the Marin Independent Journal and the Hayward Daily Review.

It would compete directly with the Chronicle for advertising, and would be distributed mostly through paid home subscriptions and some street racks, he said.

Owning a daily newspaper had been one of his family's goals ever since his late father, John Fang, who was a Shanghai reporter, immigrated to the United States, he said. &lt;